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This is how you disrupt an industry …

This was posted on Fast Company Website 

 

Imagine walking into the Italian factory that makes leather bags for Celine, and asking them to make you a black leather tote bag. You want the same exact high-quality materials, the same meticulous craftsmanship, similar designs. The only thing that is missing is the big logo. If you paid the bag maker fairly for the materials and the labor, the bag would run you about $250, which is a tiny fraction of a $4,000 tote you would pick up at a Celine boutique.

Italic, a new members-only marketplace that launches today, wants to sell you that Celine-quality bag without the outrageous price that comes along with the logo. Founder and CEO Jeremy Cai scoured the globe to find the factories that make products for the best luxury brands in the world and delivers a curated array of exclusive products from those same factories at reasonable prices. Unlike other direct-to-consumer startups, Italic doesn’t design products or even buy inventory from these manufacturers, leaving this up to product designers at the factories.

Among its 100 introductory products at launch, Italic will sell a $95 cashmere scarf made at Burberry’s factory, a $75 quilted wallet made at Prada’s factory, a $245 bucket bag made at Givenchy’s factory, and–my favorite item of the bunch–a $225 black pebbled fanny pack made at Cartier’s factory. New items will launch every month. Members pay an annual fee of $120 to gain access to the products, and can only purchase two items a month, but Italic is waiving this fee for anybody who signs up in 2018.

The products themselves don’t rip off the specific designs of other luxury brands–instead, products are crafted by makers at the factory who have years of experience making products for other companies. Parsing the Italic website, there are lots of designs that are on trend but aren’t reminiscent of any particular brand. The fanny pack, for instance, reflects the current, slightly ironic craze for this ’90s-style bag that brands like Gucci and Louis Vuitton are playing into. A leather jacket is designed with the cropped moto look that is so in vogue, with unfussy silver hardware. Yet none of the items crib a specific design element of a particular brand, like the structured silhouette of Celine totes or Prada’s creative use of industrial nylon in backpacks and belt bags.

“We’re not trying to create a cohesive design language where everything must adhere to one specific aesthetic,” says Cai. “We’re not a product development shop. We’re trying to replicate what a retailer does at scale, but instead of working with brands, we’re working with manufacturing partners. The goal is to give customers lots of options.”

At the start, the majority of Italic’s offerings will be luxury accessories, like scarves and bags, since these products have the highest markups and best demonstrate the company’s value proposition. But eventually, Cai hopes to expand into a wide range of other categories, like toothbrushes and skincare. In each case, Italic will locate the very best manufacturers and make the same high-quality product without any branding.

Over the past several years, new startups like M.Gemi, Everlane, and Cuyana have said they use the same factories as luxury brands, but they generally don’t go so far as to name which brands they are specifically referring to. Italic, on the other hand, boldly names the specific brands that also make products at these factories. (That said, Italic doesn’t actually provide identifying details about these factories, like their names or locations, so the factory owners don’t damage their relationships with the luxury brands in question.)

“We’re a little controversial in that we say ‘here is a handbag made in the same factory as Prada,’” Cai says. “But because you’re buying it from the source, and there are no logos on any of our products, you can get it for a fifth or a tenth of the price that you might normally expect to pay. We think this is a powerful value proposition to someone who likes nice things but doesn’t like paying the premium for a logo.”

Instead, Cai and his team locate what they believe are they best factories in the world and connect them directly to customers through the Italic marketplace. Italic has its own inspection process, rather than just relying on third-party inspectors, and the company sends its own employees to learn about the the factory’s treatment of workers, environmental certifications, and quality. Cai says that Italic has turned down the vast majority of the more than 200 factories they have visited this year.

On the back end, the company created a software system that helps manufacturers track their inventory and sales through the Italic platform in real time. This is important, because these factories have often never sold directly to customers before. On the website, Italic curates a selection of products to sell, photographs them, and puts them on the Italic website for members to purchase. The company takes a commission from the factory which will fund its operations.

Cai, who is in his twenties, is a Thiel Fellow, which means that he received a $100,000 scholarship from Peter Thiel’s foundation to drop out of school and pursue a big idea. He describes Italic as an “e-commerce moonshot” because it could disrupt the way that consumers engage with brands. That is, Italic could chip away at luxury fashion houses, allowing customers to go directly to the source of their products. He’s spent several years tinkering with this business idea and building out a team of executives who have worked at brands like Calvin Klein, Patagonia, Snap, and Wayfair. He’s also generated $13 million in funding from institutional investors like Comcast Ventures, Global Founders Capital, and individual investors such as the founders of Away luggage.

One of Cai’s biggest challenges was convincing these factory owners that he had their best interests in mind and wanted to help them make more money. Many luxury brands squeeze manufacturer’s margins while selling the product at 8 or 10 times what they cost to make, pouring this money into elaborate photoshoots, fancy stores, and shareholder’s pockets. Cai, on the other hand, is interested in finding ways to increase the amount that the factory makes on each item, while still selling them at prices that customers would think is great value. Cai, and his investors, believe this could be a winning business proposition for Italic as well, since the company will attract a much wider market than a typical luxury brand charging significantly more for each item.

While the idea of shopping directly from the factory is a relatively novel concept here in the U.S., it’s an idea that has been popular in China. Several Chinese companies, like Biyao, NetEase YanXuan, and Xiaomi Mijia Youpin, all operate on a similar model of going into top factories and selling brandless versions of products. The model has been successful with the Chinese market, which is remarkable since Chinese consumers tend to be more logo conscious than American ones. “People love logos there, it’s almost like America in the ’90s,” says Cai, whose family is from China. “And yet companies like these have really exploded.”

In his initial customer research, Cai has found that people’s attachment to a specific brand name varies a lot from person to person. Some people will only buy their sheets from luxury bedding maker Frette, but don’t care whether their leather bag has a fancy logo on it, as long as it is durable. Another person will drop $4,000 on a Celine bag, but will buy drugstore aisle makeup as long as it looks good. Cai’s goal is to provide a wide variety of products so that there’s something on the site for every kind of consumer.

While there’s been a resurgence of logomania over the last few years, with brands like Gucci and Louis Vuitton plastering logos on products, a 2015 report by Goldman Sachs found that millennials prefer clothing without logos and branding. Italic is a direct response to this trend. “We’re cutting out the brand, which is the largest middleman of all,” Cai says.

Elizabeth Segran, Ph.D., is a staff writer at Fast Company.